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Length of Board Tenure and Outside Director Independence

Length of Board Tenure and Outside Director Independence I posit and test two competing views on the significance of outside director tenure lengths; the expertise hypothesis suggesting that extended board service time is a sign of director commitment, experience, and competence and the management‐friendliness hypothesis suggesting that extended board service time marks directors who befriend management at the expense of shareholders. I find evidence that Senior directors, defined as directors with twenty or more years of board service, are almost twice as likely to occupy a ‘management‐affiliated’ profession compared to the rest, and that they are also more likely to staff the firm's nominating and compensation committees. Senior director participation in the compensation committee is associated with higher pay for the CEO, especially when the CEO is more powerful in the firm. These results are consistent with the management‐friendliness hypothesis, and highlight a need for setting term limits for directors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

Length of Board Tenure and Outside Director Independence

Journal of Business Finance & Accounting , Volume 30 (7‐8) – Sep 1, 2003

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References (29)

Publisher
Wiley
Copyright
Copyright © 2003 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/1468-5957.05525
Publisher site
See Article on Publisher Site

Abstract

I posit and test two competing views on the significance of outside director tenure lengths; the expertise hypothesis suggesting that extended board service time is a sign of director commitment, experience, and competence and the management‐friendliness hypothesis suggesting that extended board service time marks directors who befriend management at the expense of shareholders. I find evidence that Senior directors, defined as directors with twenty or more years of board service, are almost twice as likely to occupy a ‘management‐affiliated’ profession compared to the rest, and that they are also more likely to staff the firm's nominating and compensation committees. Senior director participation in the compensation committee is associated with higher pay for the CEO, especially when the CEO is more powerful in the firm. These results are consistent with the management‐friendliness hypothesis, and highlight a need for setting term limits for directors.

Journal

Journal of Business Finance & AccountingWiley

Published: Sep 1, 2003

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